<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 1-9885
Banyan Mortgage Investment Fund
(Exact name of Registrant as specified in its charter)
Delaware 36-3465359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 553-9800
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X . NO .
Shares of common stock outstanding as of May 15, 1996: 39,822,304.
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 154,883 $ 316,012
Restricted Cash 1,702,481 ---
Repair, Improvement and Real
Estate Tax Escrows 617,969 775,754
Accounts Receivable (Net of
Allowance for Doubtful Accounts
of $121,000 and $65,000 for
1996 and 1995, respectively) 49,991 76,110
----------- ------------
2,525,324 1,167,876
----------- ------------
Investment in Real Estate:
Land 55,379,003 55,379,003
Developments in Progress 30,924,263 30,872,769
Real Estate Held for Sale 17,176,845 17,176,845
------------ ------------
Net Investment in Real Estate 103,480,111 103,428,617
------------ ------------
Net Investment in Real Estate
Venture 225,131 1,097,363
Deferred Financing Costs (Net of
Accumulated Amortization of
$481,429 and $399,831 for 1996
and 1995, respectively) 827,767 909,365
Other Assets 2,567,607 2,530,293
------------ ------------
Total Assets $109,625,940 $109,133,514
============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities
Accounts Payable and Accrued
Expenses $ 2,437,852 $ 1,686,511
Interest Payable 3,010,004 1,268,553
Real Estate Taxes Payable 480,702 384,500
Mortgage Loans Payable 33,625,737 33,625,737
------------ ------------
Total Liabilities 39,554,295 36,965,301
------------ ------------
</TABLE>
2
<PAGE> 3
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995 (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Stockholders' Equity
Shares of Common Stock, $0.01
Par Value, 100,000,000 Shares
Authorized, 39,842,404 Shares
Issued 348,205,447 348,205,447
Accumulated Deficit (278,122,486) (276,025,918)
Treasury Stock, at Cost, 20,100 )
Shares of Common Stock (11,316) (11,316
------------ ------------
Total Stockholders' Equity 70,071,645 72,168,213
------------ ------------
Total Liabilities and Stock-
holders' Equity $109,625,940 $109,133,514
============ ============
Book Value Per Share of Common
Stock (39,822,304 Shares
Outstanding) $ 1.76 $ 1.81
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
INCOME
Interest on Cash and Cash
Equivalents $ 10,353 $ 86,111
Operating Property Revenue 205,559 531,260
---------- ----------
Total Income 215,912 617,371
EXPENSES
Expenses From Property
Operating Activities:
Operating Property Expenses 129,432 116,655
Development Property Expenses 414,082 412,521
Repairs and Maintenance 34,422 47,842
Real Estate Taxes 182,139 88,909
Depreciation 5,404 102,976
Bad Debt (Recovery) Expense 56,000 (13,000)
Total Expenses From Property ---------- ----------
Operating Activities 821,479 755,903
---------- ----------
Other Expenses (Recoveries):
Stockholder Expenses 50,595 71,847
Directors' Fees, Expenses
and Insurance 79,709 129,748
Other Professional Fees 353,363 74,335
General and Administrative 463,788 301,799
Recovery of Losses on Mortgage
Loans, Notes and Interest
Receivable (418,972) (495,591)
Interest Expense and
Amortization of Deferred Loan
Costs 1,942,349 681,454
---------- ----------
Total Other Expenses 2,470,832 763,592
---------- ----------
Total Expenses 3,292,311 1,519,495
---------- ----------
</TABLE>
4
<PAGE> 5
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Operating Loss (3,076,399) (902,124)
Net Income (Loss) From Operations
of Real Estate Venture 979,831 (43,629)
Gain on Dispositions --- 1,017
of Real Estate ----------- ---------
Net Loss $(2,096,568) $(944,736)
=========== =========
Net Loss Per Share of Common
Stock (Based on Weighted
Average Number of Shares
Outstanding of 39,822,304
and 39,742,395 during 1996
and 1995, respectively) $ (0.05) $ (0.02)
=========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Accumulated Treasury
Shares Amount Deficit Stock Total
<S> <C> <C> <C> <C> <C>
Stockholders'
Equity,
December 31,
1995 39,842,404 $348,205,447 $(276,025,918) $(11,316) $72,168,213
Net Loss --- --- (2,096,568) --- (2,096,568)
---------- ------------ ------------- -------- -----------
Stockholders'
Equity, 39,842,404 $348,205,447 $(278,122,486) $(11,316) $70,071,645
March 31, 1996 ========== ============ ============= ======== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS $(2,096,568) $ (944,736)
Adjustments to Reconcile Net
Loss to Net Cash Used In
Operating Activities:
Depreciation 5,404 102,976
Amortization of Deferred
Loan Costs 81,598 82,469
Provision (Recovery) for Bad
Debts 56,000 (13,000)
Gain on Disposition of
Real Estate --- (1,017)
Net (Income) Loss From Operations
of Real Estate Venture (979,831) 43,629
Net Change In:
Interest Receivable on Cash and
Cash Equivalents --- 603
Restricted Cash (1,702,481) ---
Real Estate Tax Escrow --- (101,200)
Accounts Receivable (29,881) 11,685
Other Assets (42,718) 33,017
Accounts Payable and Accrued
Expenses 751,341 (290,141)
Real Estate Taxes Payable 96,202 127,376
Interest Payable 1,741,451 110,557
----------- ----------
Net Cash Used In Operating
Activities (2,119,483) (837,782)
----------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of Investment Securities --- (2,880,000)
Proceeds From Sale of Real Estate --- 538,719
Increase in Developments in
Progress (51,494) (1,738,115)
Decrease (Increase) in Repair and
Improvement Escrow 157,785 (93,224)
Distributions From Real Estate
Venture 1,852,063 56,411
Purchases of Land and Property
Improvements --- (77,755)
----------- ----------
Net Cash Provided by (Used in)
Investing Activities 1,958,354 (4,193,964)
----------- ----------
</TABLE>
7
<PAGE> 8
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from Mortgage Loans
Payable --- 305,859
Payment of Mortgage Loans Payable --- (737,224)
----------- -----------
Net Cash Provided by (Used in)
Financing Activities --- (431,365)
----------- -----------
Net Decrease in Cash and Cash
Equivalents (161,129) (5,463,111)
Cash and Cash Equivalents at
Beginning of Period 316,012 8,040,629
----------- -----------
Cash and Cash Equivalents at
End of Period $ 154,883 $ 2,577,518
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE> 9
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
Readers of this quarterly report should refer to Banyan Mortgage
Investment Fund's (the "Fund") audited consolidated financial statements for
the year ended December 31, 1995, which are included in the Fund's 1995 Annual
Report, as certain footnote disclosures which substantially duplicate those
contained in such audited statements have been omitted from this report. In
the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying consolidated financial statements as of
March 31, 1996 and for the three months ended March 31, 1996 and 1995. These
adjustments made to the financial statements, as presented, are all of a normal
recurring nature to the Fund, unless otherwise indicated.
1. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements, as of March 31, 1996,
include the accounts of the Fund, its wholly-owned subsidiaries and Chapman's
Landing, Southbridge, Wayside Village and Laguna Seca Ranch partnerships in
which the Fund owns, indirectly through wholly-owned subsidiaries, controlling
50% general partnership interests. Losses from these partnerships are
allocated to the minority interest partners to the extent of their respective
investments in the partnerships. Since the minority partners have made no
investment in the partnerships and are not obligated to fund losses in excess
of their investment, their minority interest currently has no value, therefore
all of the above partnerships' losses as of March 31, 1996 have been allocated
to the Fund. Profits may be allocated pro rata to the minority interest
partners to the extent that net proceeds generated from the projects exceed
priority returns payable to the Fund. All intercompany balances and
transactions have been eliminated in consolidation. The consolidated financial
statements also include the Fund's 50% interest in the VST/VMIF Oakridge
Partnership accounted for on the equity method.
2. DEBT DEFAULT AND BASIS OF PRESENTATION
In 1994, the Fund executed a credit agreement with a group of lenders, for
which Morgens, Waterfall Vintiadis & Co., Inc. ("Morgens") served as agent,
that is collateralized by substantially all of the assets of the Fund. As of
March 31, 1996, the principal balance outstanding was $23,233,738. The Fund
has not made the January 1, or April 1, 1996 required interest payments of
approximately $1,025,000 and $1,179,000, respectively. Morgens notified the
Fund that this non-payment of interest constitutes an "Event of Default" under
the Credit Agreement and reserved all of its rights and remedies under the
Credit Agreement (including demand of immediate payment of the outstanding
principal amount) but has taken no additional action. In addition, the Fund is
in default on a mortgage loan payable to Societe General ("SoGen") which has a
principal balance of $6,360,000 outstanding as of March 31, 1996.
9
<PAGE> 10
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
2. DEBT DEFAULT AND BASIS OF PRESENTATION (CONTINUED)
Effective as of April 12, 1996, an Agreement and Plan of Merger (the
"Merger Agreement") was executed among the Fund and RGI Holdings, Inc. ("RGI
Holdings") and its wholly owned subsidiary, RGI U.S. Holdings ("RGI U.S." or
collectively "RGI"). The Merger Agreement provides, among other things, for
the following (the "RGI Transaction"):
(1) At the initial closing, RGI Holdings will acquire 7,466,666
shares of the Fund's common stock for $3,500,000 in cash.
(2) Also at the initial closing, RGI Holdings will purchase the Morgens
loan and SoGen loan; from the holders thereof; and enter into a
modification agreement for each loan under which RGI Holdings will
agree, among other things, not to accelerate the Morgens loan or the
SoGen loan nor foreclose upon any collateral securing the Morgens
loan or the SoGen loan based upon any events of default occurring
(i) on or before May 15, 1996, (ii) as a result of the execution of
the Merger Agreement, or (iii) as a result of any non-monetary
default occurring between May 15, 1996 and the earlier of (a)
December 31, 1996 or (b) the Merger or the termination of the Merger
Agreement.
(3) Subsequent to the initial closing, upon approval of the Fund's
stockholders and the satisfaction of other conditions precedent, RGI
U.S., which is wholly-owned by RGI Holdings will be merged with and
into Banyan and all of the outstanding shares of RGI U.S. will be
converted into 151,445,333 shares of the Fund. The Merger will
result in the Fund owning all of the real estate assets of RGI U.S.
and RGI Holdings will own approximately 80% of the outstanding stock
of the Fund. The merger is expected to be consummated before the end
of 1996.
The accompanying consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
the classification of assets that would result from the default under the
Morgens loan or the SoGen loan due to the likelihood of completing the initial
closing of the RGI Transaction. Specifically, the carrying amount of the
Fund's development real estate continues to be evaluated for impairment based
on the undiscounted cash flows estimated to be generated by those assets over
the development period without regard to the default. If the RGI Transaction
were not completed and the defaults under the Morgens loan or the SoGen loan are
not otherwise cured or waived, the classification of the Fund's development
real estate may be changed to "held for disposal" possibly necessitating a
valuation allowance to reflect such assets at current disposable fair market
value.
3. RESTRICTED CASH
Restricted cash represents cash proceeds received during the quarter ended
March 31, 1996 from the sale by the Oakridge Venture of certain portions of the
Oakridge property as described below (see Note 6,
10
<PAGE> 11
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
3. RESTRICTED CASH (CONTINUED)
"Investment in Real Estate Venture"). As a result of the Morgens default, as
described above (See Note 2, "Debt Default and Basis of Presentation"),
Morgens, in protecting its right to demand immediate repayment of its loan, has
restricted the use of the Oakridge sales proceeds pending the completion of the
purchase of this loan by RGI Holdings. The total amount received by the Fund
has been reduced by amounts released by Morgens for the payment of certain
specific operating expenses.
4. RECLASSIFICATIONS
Certain reclassifications have been made to the previously reported 1995
consolidated financial statements in order to provide comparability with the
1996 consolidated financial statements. The reclassifications have not changed
the 1995 operating results.
5. TRANSACTIONS WITH AFFILIATES
Administrative costs, primarily salaries and general and administrative
expenses, are reimbursed by the Fund to Banyan Management Corp. ("BMC"). These
costs are allocated to the Fund and other entities to which BMC provides
administrative services based upon the actual number of hours spent by BMC
personnel on matters related to that particular entity in relation to total BMC
personnel hours. The Fund's allocated share of costs for the three months
ended March 31, 1996 and 1995 aggregated $394,340 and $218,502, respectively.
As one of its administrative services, BMC serves as the paying agent for
general and administrative costs of the Fund. As part of providing this
payment service, BMC maintains a bank account on behalf of the Fund. As of
March 31, 1996, the Fund had a net payable due to BMC of $454,469. The net
payable is included in the accounts payable and accrued expenses in the Fund's
consolidated balance sheet.
6. INVESTMENT IN REAL ESTATE VENTURE
On February 5, and March 1, 1996, the VST/VMIF Oakridge Partnership
(the "Oakridge Venture") of which the Fund owns a 50% interest through a
wholly-owned subsidiary, sold a total of 180 acres to an unaffiliated party for
approximately $4,600,000. In addition, on March 1, 1996, the Oakridge Venture
sold an additional 25-acre parcel of the Oakridge property to an unaffiliated
party for approximately $2,200,000. The Oakridge Venture utilized the proceeds
to repay a first mortgage loan collateralized by the Oakridge property in the
amount of $1,916,617. After repayment of the mortgage loan, interest and other
closing costs, the Oakridge Venture received net proceeds from the sales of
$4,180,505 (including $467,928 of deposits received during 1995)of which
$2,090,253 was distributed to the Fund in respect of its 50% interest in the
Oakridge Venture. The Fund recognized a gain
11
<PAGE> 12
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
equal to approximately $1,051,000. The Oakridge Venture is currently
engaged in negotiations to sell the remaining five-acre retail parcel at the
Oakridge property.
7. RECOVERY OF LOSSES ON LOANS, NOTES AND INTEREST RECEIVABLE
For the quarters ended March 31, 1996 and 1995 the Fund received cash
distributions of $418,972 and $566,783, respectively, in respect of its
interests in two liquidating trusts established for the benefit of the
unsecured creditors (including the Fund) of VMS Realty Partners and its
affiliates ("VMS"). The Fund has treated $418,972 and $495,591, respectively,
of these amounts as recovery of losses on mortgage loans, notes and interest
receivable in its consolidated statement of income and expenses. As of
December 31, 1995 and March 31, 1996, a total of $127,468 of these
distributions has been recorded as a liability to the Class Action Settlement
Fund representing the Fund's share of amounts due under the terms of the
previously settled VMS securities litigation. This amount is recorded in
Accounts Payable and Accrued Expenses at March 31, 1996.
8. LITIGATION AND CONTINGENCIES
On September 1, 1995, an action was filed in the Circuit Court of Cook
County, Illinois entitled: Monterey County Partners et al v. BMIF Monterey
County Limited Partnership et al; (the "Illinois Litigation"). BMIF Monterey
County Limited Partnership (the "Ownership Partnership") is controlled by a
subsidiary of the Fund and it holds the ownership interest in the Laguna Seca
project. The complaint seeks: (i) the removal of the Fund's wholly-owned
subsidiary, BMIF Monterey County Corp. as the general partner of the Ownership
Partnership; (ii) declaratory relief that BMIF Monterey County Corp. is not
entitled to any "priority return" or "preferred return" on its capital account
in the Ownership Partnership; (iii) avoidance of an alleged fraudulent transfer
whereby the Ownership Partnership became the owner of the Laguna Seca Ranch
project after the default in 1991 on the Fund's former mortgage loan; (iv) an
accounting; and (v) a constructive trust to be created for the benefit of one
of the plaintiffs.
The Fund filed an Answer, Counterclaim and Third Party Complaint on March
29, 1996. All parties have been served with and have answered initial
discovery requests and are presently producing documents.
The Fund believes the Illinois Litigation is totally without merit and
intends to vigorously defend the Illinois Litigation and to prosecute the
Counterclaim and the Third Party Complaint. The partnership agreement which
creates the Ownership Partnership requires an unsuccessful litigant or its
representative whose claim is based upon or related to the partnership
agreement to pay the reasonable attorneys' fees expended or incurred in defense
of the Illinois Litigation.
On October 10, 1995, an action was filed in the Superior Court of Monterey
County, California entitled: Monterey County Partners, et al. v.
12
<PAGE> 13
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
8. LITIGATION AND CONTINGENCIES (CONTINUED)
BMIF Monterey County Limited Partnership, et al; (the "California Litigation").
The California Litigation alleges fraudulent transfer and conspiracy and
seeks the following as remedies: (i) to set aside the Deed of Trust and the
obligations of the Ownership Partnership under a guaranty provided for in the
Morgens Loan, (ii) to quiet title to the Laguna Seca Ranch project, declaring
null and void the interest of the various defendant lenders which arises under
the Deed of Trust and (iii) an award of attorneys' fees and costs.
The California Court has encouraged the parties to attempt to agree
upon a schedule for conducting discovery and a trial in the Illinois Litigation
while the California Litigation would remain in suspense. On April 19, 1996,
the parties reported to the California Court that a schedule had been
promulgated in the Illinois Litigation providing that if the parties concluded
discovery by September 13, 1996, a trial date would be set in September or
shortly thereafter. The California Court then ordered that provided discovery
is completed by August 31, 1996, and a trial commences in Illinois during
September of 1996, no further action will be taken.
None of the defendants has yet answered the California complaint. The
Fund believes that the California Litigation is totally without merit and
intends to vigorously defend it. The partnership agreement which creates the
Ownership Partnership requires an unsuccessful litigant or its representative
whose claim is based upon or related to the partnership agreement to pay the
reasonable attorneys' fees of its opponent. The Fund intends to seek
reimbursement of all attorneys' fees expended or incurred in defense of the
California Litigation.
9. SUBSEQUENT EVENTS
On April 22, 1996 the Fund sold the 120 S. Spalding property to an unaffiliated
third party for $7,450,000. After payment of selling commissions of $186,250,
transfer taxes and title charges of $23,290 and net prorations and credits
totalling $268,875 for real estate taxes, rent, net operating expenses,
security deposits and contingencies, the Fund received net proceeds of
$6,971,585, which will be held as Restricted Cash pending the purchase of the
Morgens loan by RGI.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Banyan Mortgage Investment Fund (the "Fund") was originally established to
invest primarily in (i) short-term loans, junior mortgage loans, wraparound
mortgage loans and first mortgage loans on income-producing properties and (ii)
construction loans, pre-development loans and land loans. In response to
defaults on loans made by the Fund to its borrowers, in February 1990, the Fund
suspended making new loans, except for advances of additional funds under
circumstances which it deemed necessary to preserve the value of existing
collateral, including instances where it has foreclosed upon or taken title,
directly or indirectly to the collateral. The Fund also suspended
distributions to stockholders.
The Fund owns interests in five undeveloped or partially developed
parcels of land aggregating approximately 5,600 acres. In particular, the
Fund effectively owns 100% of the Southbridge, Wayside, Charles County and
Laguna Seca Ranch projects because the remaining limited partnership interests
in the projects are subordinated to a specific return on investment to the Fund
and the proceeds to be generated from the projects will likely be insufficient
to meet the total prioritized return due to the Fund. Therefore, since such
limited partners have made no investment in the respective partnerships, have
no control over the operations of the partnerships and are not obligated to
fund losses in excess of their investment, their minority interests have been
accorded no value in the Fund's financial statements. The Fund believes that
the value of these assets can be positively impacted through some combination
of: (i) prudent management, (ii) enhancement of entitlements and zoning
applicable to the undeveloped land; and(iii) completing infrastructure
improvements and developing lots for sale to builders. A substantial portion
of the Fund's assets, measured by the carrying value, is comprised of interests
in large tracts of undeveloped land in metropolitan Washington D.C.
(Southbridge/Wayside and Chapman's Landing) and Northern California (Laguna
Seca Ranch) all of which are in various stages of the entitlement process. The
Fund believes that long-term shareholder value will be maximized by completing
the entitlements and various infrastructure improvements at the Wayside
Village, Southbridge and Chapman's Landing properties which could make each of
these properties more marketable. As of March 31, 1996, the Fund's cash
position and financing capabilities are, however, insufficient to proceed with
the entitlement and development of these assets. In addition to the sale of
120 S. Spalding, which occurred on April 22, 1996 (see below), the Fund is
currently working to enhance its cash and liquidity position through the sale
of smaller ancillary land parcels extraneous to the overall development plan of
its undeveloped land parcels and has entered into an Agreement and Plan of
Merger (the "Merger Agreement") dated as of April 12, 1996 with RGI Holdings,
Inc. ("RGI Holdings") and its wholly owned affiliate, RGI U.S. Holdings, Inc.,
("RGI U.S."; collectively with RGI Holdings, "RGI"; all events pursuant to the
Merger Agreement; the "RGI Transaction"). As described more fully herein, the
Fund entered into the Merger Agreement with RGI in order to provide the Fund
with additional liquidity and capital resources which management believes are
necessary to proceed with the implementation of the Fund's business plan.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and restricted cash consist of cash and
short-term investments. The Fund's cash, cash equivalents and restricted cash
balance at March 31, 1996 and December 31, 1995 was $1,857,364 and $316,012,
respectively. This increase in cash, cash equivalents and restricted cash,
entirely attributable to cash flow from Investing Activities, is due primarily
to the Fund's receipt of its 50% share of cash proceeds from the VST/VMIF
Oakridge Partnership (the "Oakridge Venture") in the amount of $1,856,289 from
the sale of 205 acres of the Oakridge property. Of this amount, $1,702,481 is
being classified as Restricted Cash, as of March 31, 1996, as a result of the
debt defaults which are described below. The total amount received from the
Oakridge Venture has been reduced by amounts released by the lender for payment
of certain specific operating expenses. Assuming the successful completion of
the initial closing of the RGI Transaction, described below, then the balance
of these proceeds will be available to the Fund. If the initial closing does
not occur, the lender has the right to apply the entire Restricted Cash balance
toward repayment of its loan. Also contributing to the increase in cash was
the receipt of $418,972 from the Fund's interests in two liquidating trusts and
income from property operating activities. Partially offsetting the increase
in cash and cash equivalents and restricted cash was the payment of expenses
and capitalized items related to the development properties and the payment of
the Fund's operating expenses.
Management has taken a number of steps in an effort to enhance the
Fund's working capital position. Over the past several years, the Fund's
liquidity has been provided by cash reserves; cash generated from the
operations of the Fund's existing operating properties; which, as of March 31,
1996, consisted solely of 120 S. Spalding; interest on short term investments;
cash proceeds from property sales; interim financing and cash distributions
received from the liquidating trusts. These sources have not and do not
produce the working capital necessary to meet the cash requirements for both
development and entitlement costs related to developing the properties and
paying the Fund's operating costs.
During 1996, the Fund has continued its efforts to enhance its
liquidity position through the Oakridge Venture's sale of the Oakridge property
pursuant to the Fund's 50% interest, the sale of the 120 S. Spalding property
as completed on April 22, 1996 (see below) and the future sale of smaller
ancillary land parcels extraneous to the overall development plan of its
undeveloped land parcels. These proceeds will be used to pay interest and some
of the Fund's operating costs but will be insufficient to provide the Fund with
the cash proceeds necessary for the continued implementation of its business
plan.
The Fund entered into an Agreement and Plan of Merger (the "Merger
Agreement") with RGI Holdings, Inc. ("RGI Holdings") and its wholly owned
affiliate RGI U.S. Holdings Inc., ("RGI U.S." or collectively "RGI") effective
April 12, 1996. Under the Merger Agreement, RGI Holdings will invest
$3,500,000 to acquire 7,466,666 shares or approximately 16% of the Fund's
outstanding common stock, and will purchase the loan made to the Fund in
October 1994 by a group of lenders for which Morgens, Waterfall,
15
<PAGE> 16
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Vintiadis & Co., Inc. (the "Morgens Loan") served as agent and will
also purchase the mortgage loan made to the Fund Societe Generale ("SoGen
Loan"). Each of these loans was in default as of March 31, 1996. As part of
the Merger Agreement, RGI Holdings has agreed not to accelerate the Morgens
Loan or the SoGen Loan prior to December 31, 1996 nor foreclose on any
collateral securing the Morgens Loan or the SoGen Loan based upon any events of
default occurring (i) on or before May 15, 1996; or (ii) as a result of the
execution of the Merger Agreement; or (iii) as a result of any non-monetary
default occurring between May 15, 1996 and the earlier of (a) December 31, 1996
or (b) the Merger or the termination of the Merger Agreement.
Subject to the approval of the Fund's stockholders, RGI U.S. will be
merged with and into the Fund, with all of the outstanding shares of RGI U.S.
being converted to 151,445,333 shares of the Fund's common stock. RGI U.S.
owns a shopping center in Lynnwood, Washington and two development properties
in Vero Beach, Florida. If the merger is approved, RGI Holdings will own
approximately 80% of the Fund's outstanding shares of common stock. The Fund
anticipates seeking a vote on this merger at its annual meeting which is not
expected to occur until the early Fall 1996 after the Fund makes the necessary
regulatory filings associated with the proposed merger.
Management of the Fund believes that its remaining cash reserves,
proceeds from the sale of 120 S. Spalding, its interest in the Oakridge
Venture, ancillary land parcels at its development properties, and the cash
proceeds and capital resources to be derived from the initial closing under the
Merger Agreement, should provide sufficient funds to meet its reasonably
expected liquidity needs until completion of the merger. However, the Fund's
ability to complete and implement its business plans is dependent upon its
success in obtaining construction financing which will be facilitated by the
completion of the RGI Transaction. If the RGI Merger is not approved by the
Stockholders of the Fund, the Fund may be required to dispose of portions of
its core assets at fair market value which may likely be below the carrying
values as of March 31, 1996 in order to pay off its debt.
RESULTS OF OPERATIONS
GENERAL
Total income for the quarter ended March 31, 1996, and 1995 was $215,912
and $617,371, respectively. Total income for the quarter ended March 31, 1996
decreased when compared to the quarter ended March 31, 1995 due primarily to a
decrease in operating property income. Operating property income decreased to
$205,559 during the quarter ended March 31, 1996 from $531,260 for the quarter
ended March 31, 1995. The $325,701 decrease in operating property income is
primarily attributable to the 67% decrease in occupancy at the 120 S. Spalding
property which occurred in March 1995. Also contributing to this decline was a
decrease in interest income from cash and cash equivalents due to the decrease
in cash available for investment.
Expenses from property operating activities for the quarters ended
March 31, 1996 and 1995 were $821,479 and $755,903, respectively. The $65,576
increase in expenses from property operating activities for the quarter ended
March 31, 1996 when compared to the same period in 1995 was primarily
attributable to the increase in bad debt expense, real estate tax expense, and
operating property expenses. Bad debt expense increased by
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
$69,000 during the quarter ended March 31, 1996 when compared to the
quarter ended March 31, 1995 due to write-offs taken regarding the settlement
of certain receivables at the 120 S. Spalding property during the first quarter
of 1996 as well as the recognition of recoveries of certain receivables during
the first quarter of 1995. Real estate taxes increased by $93,230 for the
quarter ended March 31, 1996 when compared to the prior year period due to the
Fund's election to expense real estate taxes rather than capitalize them as has
been done during the same period in 1995. This change in treatment was due to
the Fund's delay in proceeding forward with the development at its Chapman's
Landing and Wayside Village projects as a result of insufficient cash proceeds
available to meet their costs as discussed above in Liquidity and Capital
Resources. This cash shortfall resulted from the failure in 1995 and 1996 to
sell land lots at Wayside Village and, thereby, reduce the Fund's debt and
provide cash resources. The corresponding debt defaults (described above) have
prevented the Fund from advancing its development plans and the Fund will
continue to expense real estate and other holding costs for the Chapman's
Landing and Wayside Village projects until the Fund is able to resume
development infrastructure improvements which is anticipated to be sometime
during the third quarter of 1996 assuming the successful completion of the RGI
Transaction and its ability to obtain construction financing. Property
operating expenses increased by $12,777 due primarily to the increase in costs
associated with the sales and marketing efforts to sell the 120 S. Spalding
property. Partially offsetting these increases in property operating expenses
were decreases in depreciation and repair and maintenance expenses of $110,992.
No depreciation was taken on the 120 S. Spalding building during the quarter
ended March 31, 1996 as the valuation allowance taken in the fourth quarter of
1995 had reduced the depreciable basis of the building to zero. Repair and
maintenance expense decreased by $13,420 due primarily to the 67% decrease in
occupancy for the 120 S. Spaulding building which reduced the demand for repair
and maintenance services effective March 1995.
Total other expenses for the quarter ended March 31, 1996 and 1995 were
$2,470,832 and $763,592, respectively. This change represents an increase of
$1,707,240 for the first quarter of 1996 when compared to the same period in
1995 and is primarily attributable to an increase in interest expense and
amortization of deferred loan costs which totalled $1,942,349 and $681,454 for
the quarters ended March 31, 1996 and 1995, respectively. The $1,260,895
increase in interest on amortization of deferred loan costs for the quarters
ended March 31, 1996 when compared to 1995 is primarily attributable to the
Fund's election to expense all interest on the Morgens Loan incurred during the
first quarter of 1996 rather than capitalize it as had been done during the
same period in 1995. This change in treatment was due to delays in the
development at its Chapman's Landing and Wayside Village projects as described
above with regard to real estate taxes. The Fund will continue to expense
interest and other holding costs for the Chapman's Landing and Wayside Village
projects unless and until development of infrastructure improvements resumes
which is anticipated for sometime during the third quarter of 1996 assuming the
successful completion of the RGI Transaction and its ability to obtain
construction financing. Also contributing to the increase in other expenses
for the quarter ended March 31, 1996 when compared to the same period in 1995,
was the increase in other professional fees and general and administrative
expenses as well as the reduction in the recovery of losses on mortgage loans,
notes and interest receivable. Other professional fees increased by $279,028
primarily due to the litigation costs associated with the Monterey County
Partners dispute as discussed in Note 8, "Litigation and Contingencies" in the
Notes to Consolidated Financial Statements. General and administrative
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
expenses increased due primarily to an increase in Banyan Management
Corp ("BMC") expenses which were allocated to the Fund based on the amount of
hours spent by BMC personnel on Fund-related matters. A significant amount of
hours were required by BMC personnel, during the quarter ended March 31, 1996,
relating to efforts to sell a portion of the Oakridge property and all of 120
S. Spalding as well as negotiating and finalizing the terms of the Merger
Agreement. During the quarters ended March 31, 1996 and 1995, the Fund
received cash distributions of $418,972 and $566,783, respectively, in respect
of its interests in two liquidating trusts established for the benefit of the
unsecured creditors (including the Fund) of VMS Realty Partners and its
affiliates ("VMS"). The Fund has treated $418,972 and 495,591, respectively of
these amounts, as a recovery of losses on loans, notes and interest
receivables. A total of $127,471 of these distributions has been recorded, as
of December 31, 1995 and March 31, 1996, as a liability to the Class Action
Settlement Fund representing the Fund's share of amounts due as required per
the terms of the previously settled VMS securities litigation. Partially
offsetting these increases are the decreases in stockholder expenses and
directors fees, expenses and insurance for the quarter ended March 31, 1996
when compared to the same period in 1995. Stockholder expenses decreased by
$21,252 for the quarter ended March 31, 1996 due to BMC personnel performing
certain tasks related to investor relations which had previously been provided
by third parties. Directors fees, expenses and insurance decreased by $50,039
due to improved rates received for directors' and officers' insurance.
Net income from operations of real estate venture relates to the Fund's
interest in the Oakridge Venture and was $979,831 for the quarter ended March
31, 1996 compared to a net loss from operations of real estate venture of
$43,629 for the quarter ended March 31, 1995. The $979,831 net income consists
of a $1,050,936 gain from the sale of 205 acres and a loss on operations of
$71,105. The increase in the operating loss between 1996 and 1995 is primarily
due to the increase in expenses related to marketing and selling the property
during 1996. For the quarter ended March 31, 1995, the Fund recognized a gain
on the disposition of real estate in the amount of $1,017 related to lot sales
at the Wayside Village property. No lots were sold at the Wayside Village
during the quarter ended March 31, 1996. See Property Operations below for
additional details.
The above changes for the quarters ended March 31, 1996 and 1995 resulted
in a net loss of $2,096,568 ($0.05 per share) and $944,736 ($0.02 per share),
respectively.
PROPERTY OPERATIONS
As of March 31, 1996, the Fund owned a medical office building located at
120 S. Spalding Dr. in Beverly Hills, California which was 27% leased at March
31, 1996 and 1995, respectively. For the quarter ended March 31, 1996, the 120
S. Spalding property provided the Fund with cash flow from rental income in
excess of operating expenses of approximately $54,000 as compared to
approximately $274,000 for 1995. The $220,000 decrease is a result of the
decrease in rental income attributable to the
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
expiration of the lease of the building's largest tenant, City National Bank
("City National") which occupied two-thirds of the building in through mid March
1995. On April 22, 1996, the Fund sold the 120 S. Spalding property to an
unaffiliated third party for $7,450,000. After payment of selling commissions
of $186,250, transfer taxes and title charges of $23,290 and net prorations and
credits totalling $268,875 for real estate taxes, rent, net operating expenses,
security deposits and contingencies, the Fund received net proceeds of
$6,971,585 which will be held as Restructured Cash pending the purchase of the
Morgens Loan by RGI Holdings.
In addition to the 120 S. Spalding property, the Fund owns interests in
five parcels of land, Southbridge, Wayside Village, Chapman's Landing, Laguna
Seca Ranch and Oakridge. During the quarter ended March 31, 1996, the Fund
disbursed a net total of approximately $51,000, excluding mortgage loan
principal repayments, for capitalized development costs and carrying costs on
Wayside Village. The expenditures were primarily for land planning,
engineering, site improvements and entitlement work. (See discussion below for
further details).
The Fund's Southbridge project consists of approximately 2,048 acres,
of which, 278 acres was previously zoned for residential development. On
January 5, 1993, the Prince William County Board of Supervisors approved the
Cherry Hill Sector Plan for the remaining 1,770 acres of land in the project
which is now entitled for 4,100 residential units and 4,200,000 square feet of
commercial space. The Fund believes that the sector plan designation enhances
the property's value and marketability. The Fund will seek to implement its
business plan for the Southbridge project which currently calls for continued
marketing efforts designed to achieve sales of certain portions of the project
beginning in the third quarter of 1996. The Fund contemplates selling small
ancillary parcels of the site and will utilize any net sales proceeds to repay
portions of outstanding debt obligations of the Fund.
The Wayside Village property was acquired by the Fund in May of 1991.
The Fund plans to continue its efforts to fund site-infrastructure work so that
additional finished lots can be sold to third party developers and builders.
The project is currently zoned for 2,224 residential units and 280,000 square
feet of commercial space. Pursuant to the modification of the Fund's SoGen
Loan and Morgens Loan, the sale of 120 S. Spalding and the RGI merger, (if
approved by the stockholders), it is the intent of the Fund to obtain financing
to continue infrastructure and site improvements at the Wayside Village
property so that additional finished lots can be sold. As of March 31, 1996
there were 1,124 unfinished residential units and 280,000 square feet of
commercial space available for sale under the current development plan. The
investments made to date by the Fund at Wayside Village have primarily been
utilized for completion of engineering, lot development, capitalized interest
and real estate taxes. Once lot development commences and improvements are
made at Wayside Village, it is the Fund's belief that negotiation of additional
sales contracts with homebuilders and developers can be finalized. As a result
of the Fund's inability to complete the necessary lot and infrastructure
improvements at Wayside Village as scheduled due to a shortfall in cash
resources through March 31, 1996 and
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
for the year ended December 31, 1995, the Fund was unable to complete and sell
the volume of lots and home sites as originally projected in its business plan,
thereby extending the time frame, in excess of two years, for the sell-off the
Wayside development. The holding costs associated with the Wayside project
during 1995 were capitalized and added to the asset's carrying value as it
proceeded with the various infrastructure improvements. As a result of
insufficient cash resources for continued development, effective January 1,
1996, the holding costs associated with the Wayside project have been expensed.
In August 1992, the Charles County zoning and development plan was approved
by the Charles County commissioners and the project is now included in the
overall comprehensive development plan for Charles County, Maryland. On October
11, 1994 Charles County approved zoning modifications for Chapman's Landing
increasing the project's total density count to 4,600 residential units from
3,500 units and 2,000,000 square feet of commercial space from 1,000,000 square
feet. During the first quarter of 1996, the Fund continued its efforts to
secure the necessary permits to allow development of the project to commence and
complete engineering work on sections of Phase I of the project. Phase I of the
project consists of 330 acres and is planned for development of 404
single-family homes and 172 townhomes. The Fund intends to begin infrastructure
and site improvements on Phase I at Chapman's Landing in the third quarter of
1996 upon completion of the RGI Merger if approved by the stockholders. As of
March 31, 1996, the Fund has one executed sales contract and has two pending
with home developers for the sale of an aggregate of approximately 260
residential finished lots in Phase I of the Chapman's Landing development.
These contracts provide for the sale of 175 townhome lots and 85 single family
home lots. The contracts are subject to the home developers' due diligence,
feasibility studies and other performance contingencies. Also, the Fund is
currently in negotiations with several other national and regional builders and
developers to sell finished lots and/or development sites in Phase I of
Chapman's Landing. The Fund anticipates that additional sales contracts will be
finalized sometime in the first half of 1996 with sales of finished lots to
builders beginning in early 1997. The Fund's expenditures at the Chapman's
Landing development have primarily been for completion of zoning, engineering,
capitalized interest, and real estate taxes.
On September 12, 1995 the Monterey County Board of Supervisors approved
the Environmental Impact Report, Zoning and Conditional Use Permits for the
Laguna Seca Ranch property which provides for the development of 253 single
family and townhome lots and an eighteen-hole golf course. With the zoning and
entitlement work now completed for the Laguna Seca Ranch property and no
immediate plans to begin development at the property, the Fund has elected,
effective January 1, 1996, to expense all holding costs associated with Laguna
Seca Ranch. It is the Fund's intent to begin marketing efforts on the Laguna
Seca Ranch property pursuant to an outright sale or possible joint venture
development of the project.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Fund owns a 50% interest in the Oakridge joint venture (the
"Venture"). The property was comprised of 270 acres of vacant land located in
Hollywood and Dania, Florida which had been operated as a golf course. On
September 30, 1994, the Venture sold a 60-acre residential parcel of the
Oakridge site to an unaffiliated third party for $4,100,000. On February 5,
1996 and March 1, 1996, the Venture sold a total of 180 acres to an
unaffiliated party for approximately $4,000,000. In addition, on March 1,
1996, the Venture sold an additional 25-acre parcel of the Oakridge site to an
unaffiliated party for approximately $2,200,000. The variance in the price per
acre between the three contracts is due to a difference in unit density
approved for the individual parcels as well as a difference in the number of
developable acres in each parcel. The February and March, 1996 sales enabled
the Venture to repay a first mortgage loan collateralized by the Oakridge
property in the amount of $1,916,617. After repayment of the mortgage loan,
interest and other closing costs the Venture received net proceeds from the
sales of $4,180,505 of which $2,090,253 was distributed to the Fund. The
Venture is currently engaged in negotiations to sell the remaining 5-acre
retail parcel at the Oakridge site.
The Fund has a contract interest in 950 L'Enfant Plaza, an eight story
office building with two parking levels located in a four-building complex with
232,000 square feet of rentable space located in Washington D.C. The property
is currently under a renovation and retenanting program which is anticipated to
be completed in 1996. The Fund is entitled to 2.5% of the monthly cash flow
from operations of the property, which provided $27,594 in cash flow to the
Fund for the quarter ended March 31, 1995. No cash flow payments were received
in 1996 due to the current interruption in cash flow due to the termination of
the lease with the building's tenant while retenanting of the building is under
way. The Fund is also entitled to receive 4% of the gross sales proceeds of
the property upon sale. The Fund is not entitled to participate in the
decisions of management in respect to the property.
LITIGATION AND CONTINGENCIES
On September 1, 1995, an action was filed in the Circuit Court of Cook
County, Illinois entitled: Monterey County Partners et al v. BMIF Monterey
County Limited Partnership et al; 95 CH 8456 (the "Illinois Litigation"). The
plaintiffs in the Illinois Litigation are as follows: (a) Monterey County
Partners, a partnership which itself is a partner with the Fund's subsidiary,
BMIF Monterey County Corp., in a partnership known as BMIF Monterey County
Limited Partnership (the "Ownership Partnership"), which is the entity that
owns the Laguna Seca project; (b) Investors Liquidating Trust, a Delaware Trust
which has been alleged to own 100% of the common stock of VMS Laguna Seca,
Inc., the 1% general partner of VMS Laguna Seca Limited Partnership, which is
an alleged 80% partner in Monterey County Partners and the 99% limited
partnership interest in VMS Laguna Seca Limited Partnership and (c) VMTGZ
Mortgage Investors, L.P.II, the principal beneficiary of Investors Liquidating
Trust.
21
<PAGE> 22
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
LITIGATION AND CONTINGENCIES (CONTINUED)
Named in the case as defendants, in addition to the Ownership Partnership
and BMIF Monterey County Corp. were: (a) Leonard G. Levine,
President of the Fund and (b) Banyan Management Corp., the company which
provides administrative services to the Fund pursuant to an Administrative
Services Agreement. Mr. Levine and Banyan Management Corp. were subsequently
dismissed from this litigation.
The complaint seeks: (i) the removal of BMIF Monterey County Corp. as the
general partner of the Ownership Partnership (BMIF Monterey County Limited
Partnership) and the replacement with Kimball Small Residential Properties,
Inc., a partner in Monterey County Partners as the new general partner; (ii)
declaratory relief that BMIF Monterey County Corp. is not entitled to any
"priority return" or "preferred return" on its capital account in the Ownership
Partnership; (iii) avoidance of an alleged fraudulent transfer whereby the
Ownership Partnership became the owner of the project after the default in 1991
on the Fund's former mortgage loan to Monterey County Partners upon which the
Fund had initiated foreclosure proceedings which culminated in the execution of
the Ownership Partnership agreement; and the creation of a capital account in
an amount not less than approximately $4,800,000 in favor of Monterey County
Partners; (iv) an accounting; and (v) a constructive trust to be created for
the benefit of one of the plaintiffs. Count I of the complaint, seeking the
removal of BMIF Monterey County Corp. as general partner and the replacement
with Kimball Small Residential Properties, Inc. has been stricken on the Fund's
motion. An amended Count I eliminates the request that Kimball Small
Residential Properties, Inc. be named as the replacement general partner.
The Fund filed an Answer, Counterclaim and Third Party Complaint on March
29, 1996. The Counterclaim seeks a dissolution of the Ownership Partnership
and a wind-up of its affairs and monetary damages against Monterey County
Partners. The Counterclaim and Third Party Complaint seek monetary damages
against Kimball Small Management and Kimball Small Residential Properties,
Inc., which were associated with Monterey County Partners. All parties have
served and answered initial discovery requests and are presently producing
documents. Depositions of certain parties and others have been noticed but no
testimony has yet been given.
The parties appeared before the Illinois Court on April 3, 1996, upon the
defendants' motion, to request the Court to impose a discovery and trial
schedule. The Illinois Court ordered that if the parties conclude discovery by
September 13, 1996, a trial date would be set in September or shortly
thereafter.
On May 14, 1996, the Plaintiff filed a pleading entitled First Amended
Complaint To Remove and Replace General Partner, For Declaratory Judgment, An
Accounting, To Set Aside Fraudulent Transfers, To Quiet Title And For Other
Equitable Relief And For Damages which purports to name, as additional
defendants, the Fund, RGI Realty, Inc., the various Morgens, Waterfall Lenders,
Mr. Levine and Banyan Management Corp. The Fund is reviewing this complaint.
22
<PAGE> 23
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
LITIGATION AND CONTINGENCIES (CONTINUED)
The Fund believes the Illinois Litigtion is totally without merit and
intends to vigorously defend the Illinois Litigation and to prosecute the
Counterclaim and the Third Party Complaint. The partnership agreement which
creates the Ownership Partnership requires an unsuccessful litigant or its
representative whose claim is based upon or related to the partnership
agreement to pay the reasonable attorneys' fees of its opponent. The Fund
intends intends to seek reimbursement of all attorneys' fees expended or
incurred in defense of the Illinois Litigation.
On October 10, 1995, an action was filed in the Superior Court of
Monterey County, California entitled: Monterey County Partners, et al. v. BMIF
Monterey County Limited Partnership, et al; Case No. 105280 (the "California
Litigation").
The plaintiff entity, which is a partner with the Fund's subsidiary,
BMIF Monterey County Corp., in the limited partnership known as BMIF
Monterey County Limited Partnership, which owns the Laguna Seca Ranch property
(the "Ownership Partnership") has filed suit in its own name and derivatively
on behalf of the Ownership Partnership against the Ownership Partnership and
each of the participant entities in the Morgens Loan, which loan is partially
guaranteed by the Ownership Partnership, which partial guaranty is
collateralized by a deed of trust recorded against the Laguna Seca Ranch
property.
The California Litigation alleges fraudulent transfer and conspiracy
and seeks the following as remedies: (i) to set aside the Deed of Trust and
the obligations of the Ownership Partnership under the Morgens Loan guaranty;
(ii) to quiet title to the Laguna Seca Ranch project, declaring null and void
the interest of Morgens under the Deed of Trust; and (iii) an award of
attorneys' fees and costs.
A motion to stay the California case, made by all defendants, was heard
and denied without prejudice on January 5, 1996. Subsequently, on March 8,
1996, the court held a hearing on several motions to dismiss filed by all
defendants. The California Court encouraged the parties to attempt to agree
upon a schedule for conducting discovery and a trial in the Illinois Litigation
while the California Litigation would remain in suspense. On April 19, 1996,
the parties reported to the California Court the schedule that had been
promulgated in the Illinois Litigation. The California Court then ordered that
provided discovery is completed by August 31, 1996, and a trial commences in
Illinois during September of 1996, no further action will be taken in
California.
None of the defendants has yet answered the California complaint. The
Fund believes that the California Litigation is totally without merit and
intends to vigorously defend it. As stated above, the partnership agreement
which creates the Ownership Partnership requires an unsuccessful litigant or
its representative whose claim is based upon or related to the partnership
agreement to pay the reasonable attorneys' fees of its opponent. The Fund
intends to seek reimbursement of all attorneys' fees expended or incurred in
defense of the California Litigation.
23
<PAGE> 24
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
LITIGATION AND CONTINGENCIES (CONTINUED)
In a related but separate action entitled BMIF Monterey County Limited
Partnership v. Lombardo et al; Case No. 106363, Superior Court of California,
Monterey County, the Ownership Partnership seeks a writ of possession against
Anthony Lombardo, a local attorney, who, the Ownership Partnership contends
formerly represented it and who is therefore in possession of documents
belonging to the Ownership Partnership. The trial court denied the plaintiff's
application for a writ of possession and Lombardo has counterclaimed alleging
abuse of process. The Ownership Partnership has filed motions to dismiss the
counterclaim. A hearing on the motions to dismiss has been scheduled for May
31, 1996.
The Registrant is not aware of any other material pending legal
proceedings as of May 15, 1996.
24
<PAGE> 25
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are included with this Report.
The following exhibits are incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.
Exhibit Number Description
(2) Agreement and Plan of Merger dated as of April
12, 1996 by and among RGI U.S. Holdings, Inc.,
RGI Holdings Inc. and the Registrant.
(10)(i) Second Amendment of Leonard G. Levine's
Employment Contract dated December 31, 1992.
(10)(ii) Form of Director Stock Option Agreements dated
July 1, 1993, July 24, 1994 and July 7, 1995.
(10)(iii) Form of Executive Stock Option Agreements dated
July 1, 1993, January 12, 1994 and February 8, 1995.
(21) Subsidiaries of the Fund
The following exhibits are incorporated by reference from the
Registrant's Registration Statement on Form S-11 (file number 33-17597),
referencing the exhibit numbers used in such Registration Statement.
Exhibit Number Description
(3)(a) Restated Certificate of Incorporation
(3)(b) By-Laws
The following exhibit is incorporated by reference from the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994:
Exhibit Number Description
(10) Material Contracts
Description of Registrant Credit Agreements,
Notes and Warrants with Morgens Waterfall,
Vintiadis & Co. Inc., Exhibit 10(a) through
10(n).
(b) No reports were filed on Form 8-K during the quarter ended
March 31, 1996.
25
<PAGE> 26
SIGNATURES
PURSUANT to the requirements of the Securities Exchange Act of 1934, the
Fund has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANYAN MORTGAGE INVESTMENT FUND
By: /s/ Date: May 20, 1996
Leonard G. Levine, President
By: /s/ Date: May 20, 1996
Joel L. Teglia, Vice President,
Chief Financial and Accounting Officer
26
<PAGE> 27
SIGNATURES
PURSUANT to the requirements of the Securities Exchange Act of 1934, the
Fund has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANYAN MORTGAGE INVESTMENT FUND
By: ______________________________ Date: May 20, 1996
Leonard G. Levine, President
By: ______________________________ Date: May 20, 1996
Joel L. Teglia, Vice President,
Chief Financial and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Banyan
Mortgage Investment Fund's 10-Q for the quarter ended March 31, 1996 and
is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,857,364
<SECURITIES> 0
<RECEIVABLES> 170,991
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0
0
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</TABLE>
